UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-10776
CALGON CARBON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
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25-0530110 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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3000 GSK Drive |
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Moon Township, Pennsylvania |
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15108 |
(Address of principal executive offices) |
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(Zip Code) |
(412) 787-6700
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ |
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Accelerated filer ☐ |
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Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
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Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
Outstanding as of July 25, 2016 |
Common Stock, $.01 par value per share |
50,624,108 shares |
CALGON CARBON CORPORATION
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2016
This Quarterly Report on Form 10-Q contains historical information and forward-looking statements. Forward-looking statements typically contain words such as “expect,” “believe,” “estimate,” “anticipate,” or similar words indicating that future outcomes are uncertain. Statements looking forward in time, including statements regarding the planned acquisition of the assets and business of the wood-based activated carbon, reactivation and mineral-based filtration media business of CECA, a subsidiary of Arkema Group (the Activated Carbon and Filter Aid Business), future growth and profitability, price increases, cost savings, broader product lines, enhanced competitive posture and acquisitions, are included in this Quarterly Report on Form 10-Q and in the Company’s most recent Annual Report on Form 10-K pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks and uncertainties that may cause Calgon Carbon Corporation’s (the “Company”) actual results in future periods to be materially different from any future performance suggested herein, including without limitation, the Company’s ability to successfully complete the acquisition of the Activated Carbon and Filter Aid Business, including satisfying the various closing conditions and the Company’s ability to successfully integrate the Activated Carbon and Filter Aid Business and achieve the expected results of the acquisition, including any expected synergies and the expected accretion to earnings. Further, the Company operates in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond the Company’s control. Some of the factors that could affect future performance of the Company are changes in, or delays in the implementation of, regulations that cause a market for our products, acquisitions, higher energy and raw material costs, costs of imports and related tariffs, unfavorable weather conditions and changes in market prices of natural gas relative to prices of coal, labor relations, availability of capital, and environmental requirements as they relate both to our operations and to our customers, changes in foreign currency exchange rates, borrowing restrictions, validity of patents and other intellectual property, and pension costs. In the context of the forward-looking information provided in this Quarterly Report on Form 10-Q and in other reports, please refer to the discussions of risk factors and other information detailed in, as well as the other information contained in the Company’s most recent Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made and the Company does not intend to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by the Federal securities laws of the United States.
In reviewing any agreements incorporated by reference in this Form 10-Q, please remember such agreements are included to provide information regarding the terms of such agreements and are not intended to provide any other factual or disclosure information about the Company. The agreements may contain representations and warranties by the Company, which should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties should those statements prove to be inaccurate. The representation and warranties were made only as of the date of the relevant agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments. Accordingly, these representations and warranties alone may not describe the actual state of affairs as of the date they were made or at any other time.
1
2
PART I — FINANCIAL INFORMATION
CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands Except Per Share Data)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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||||||||
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2016 |
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2015 |
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2016 |
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2015 |
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Net sales |
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$ |
132,597 |
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$ |
135,452 |
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$ |
252,796 |
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$ |
271,155 |
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|
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Cost of products sold (excluding depreciation and amortization) |
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87,663 |
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84,614 |
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166,122 |
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171,832 |
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Depreciation and amortization |
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9,461 |
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8,463 |
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18,236 |
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17,164 |
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Selling, general and administrative expenses |
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21,984 |
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21,002 |
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44,966 |
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42,100 |
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Research and development expenses |
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1,318 |
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1,578 |
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2,838 |
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2,974 |
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|
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|
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120,426 |
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115,657 |
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232,162 |
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234,070 |
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Income from operations |
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12,171 |
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19,795 |
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20,634 |
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37,085 |
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Interest income |
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29 |
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34 |
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35 |
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45 |
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Interest expense |
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(228) |
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(115) |
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(561) |
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(246) |
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Other income (expense) — net |
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(20) |
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(603) |
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203 |
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(1,151) |
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Income before income tax provision |
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11,952 |
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19,111 |
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20,311 |
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35,733 |
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Income tax provision |
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4,056 |
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6,531 |
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6,957 |
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12,092 |
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Net income |
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7,896 |
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12,580 |
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13,354 |
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23,641 |
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Other comprehensive income (loss), net of tax (Note 8) |
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Foreign currency translation |
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(3,408) |
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3,324 |
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(311) |
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(6,972) |
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Defined benefit pension plans |
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739 |
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147 |
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1,263 |
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957 |
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Derivatives |
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1 |
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(362) |
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(789) |
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(118) |
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Total other comprehensive income (loss) |
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(2,668) |
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3,109 |
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163 |
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(6,133) |
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Total comprehensive income |
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$ |
5,228 |
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$ |
15,689 |
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$ |
13,517 |
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$ |
17,508 |
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Net income per common share |
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Basic |
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$ |
0.16 |
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$ |
0.24 |
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$ |
0.27 |
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$ |
0.45 |
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Diluted |
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$ |
0.15 |
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$ |
0.24 |
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$ |
0.26 |
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$ |
0.44 |
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Dividends per common share |
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$ |
0.05 |
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$ |
0.05 |
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$ |
0.10 |
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$ |
0.10 |
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Weighted average shares outstanding, in thousands |
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Basic |
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50,225 |
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52,314 |
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50,267 |
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52,382 |
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Diluted |
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50,987 |
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53,179 |
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51,014 |
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53,254 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share Data)
(Unaudited)
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June 30, |
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December 31, |
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2016 |
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2015 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
51,240 |
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$ |
53,629 |
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Receivables (net of allowance of $1,633 and $1,675) |
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95,948 |
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96,674 |
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Revenue recognized in excess of billings on uncompleted contracts |
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7,588 |
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9,156 |
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Inventories |
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123,142 |
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110,364 |
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Deferred income taxes — current |
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22,703 |
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22,537 |
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Other current assets |
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11,893 |
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15,365 |
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Total current assets |
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312,514 |
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307,725 |
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Property, plant and equipment, net |
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308,581 |
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311,019 |
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Intangibles, net |
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5,425 |
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5,961 |
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Goodwill |
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25,550 |
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25,777 |
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Deferred income taxes — long-term |
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2,827 |
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2,816 |
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Other assets |
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3,444 |
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3,220 |
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Total assets |
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$ |
658,341 |
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$ |
656,518 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
57,499 |
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$ |
53,716 |
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Billings in excess of revenue recognized on uncompleted contracts |
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3,731 |
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3,581 |
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Payroll and benefits payable |
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11,531 |
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13,753 |
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Accrued income taxes |
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2,724 |
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2,091 |
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Current portion of long-term debt |
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7,500 |
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7,500 |
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Total current liabilities |
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82,985 |
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80,641 |
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Long-term debt |
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101,633 |
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103,941 |
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Deferred income taxes — long-term |
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40,314 |
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41,383 |
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Accrued pension and other liabilities |
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37,366 |
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36,562 |
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Total liabilities |
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262,298 |
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262,527 |
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Commitments and contingencies (Note 11) |
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Stockholders’ equity: |
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Common stock, $.01 par value, 100,000,000 shares authorized, 57,773,786 and 57,646,683 shares issued |
|
|
578 |
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|
576 |
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Additional paid-in capital |
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183,956 |
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181,713 |
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Retained earnings |
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406,915 |
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398,627 |
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Treasury stock, at cost, 10,780,813 and 10,232,612 shares |
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(153,939) |
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(145,295) |
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Accumulated other comprehensive loss |
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(41,467) |
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(41,630) |
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Total stockholders’ equity |
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396,043 |
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393,991 |
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Total liabilities and stockholders’ equity |
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$ |
658,341 |
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$ |
656,518 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
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Six Months Ended |
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June 30, |
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||||
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2016 |
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2015 |
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Cash flows from operating activities |
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Net income |
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$ |
13,354 |
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$ |
23,641 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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|
18,236 |
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|
17,164 |
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Employee benefit plan provisions |
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|
2,090 |
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|
541 |
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Stock-based compensation |
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2,196 |
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|
2,057 |
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Deferred income tax (benefit) expense |
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(1,349) |
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|
540 |
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Changes in assets and liabilities — net of effects from foreign exchange: |
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Decrease (increase) in receivables |
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2,020 |
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(4,402) |
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Increase in inventories |
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(11,176) |
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(10,409) |
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Decrease in revenue in excess of billings on uncompleted contracts and other current assets |
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|
5,004 |
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|
4,276 |
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Increase (decrease) in accounts payable and accrued liabilities |
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1,646 |
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(5,951) |
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Pension contributions |
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(711) |
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|
(1,894) |
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Other items — net |
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(441) |
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|
494 |
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Net cash provided by operating activities |
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30,869 |
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|
26,057 |
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Cash flows from investing activities |
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Proceeds from sale of assets |
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1,234 |
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|
— |
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Capital expenditures |
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|
(16,892) |
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|
(33,932) |
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Net cash used in investing activities |
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(15,658) |
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|
(33,932) |
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|
|
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Cash flows from financing activities |
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Japanese working capital loan borrowings — short-term |
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— |
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|
840 |
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Japanese working capital loan repayments — short-term |
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— |
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(1,254) |
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Credit agreement borrowings — long-term |
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|
58,334 |
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|
49,800 |
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Credit agreement repayments — long-term |
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(57,283) |
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(30,600) |
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Repayment of term loan — long-term |
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|
(4,001) |
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— |
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Treasury stock purchased |
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|
(8,644) |
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|
(8,910) |
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Common stock dividends paid |
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|
(5,066) |
|
|
(5,270) |
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Proceeds from the exercise of stock options |
|
|
163 |
|
|
944 |
|
Net cash (used in) provided by financing activities |
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|
(16,497) |
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|
5,550 |
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|
|
|
|
|
|
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Effect of exchange rate changes on cash and cash equivalents |
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|
(1,103) |
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(718) |
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|
|
|
|
|
|
|
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Net decrease in cash and cash equivalents |
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|
(2,389) |
|
|
(3,043) |
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Cash and cash equivalents, beginning of period |
|
|
53,629 |
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|
53,133 |
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Cash and cash equivalents, end of period |
|
$ |
51,240 |
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$ |
50,090 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
CALGON CARBON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
1. Basis of Presentation and Accounting Policies
The condensed consolidated financial statements included herein are unaudited and have been prepared by Calgon Carbon Corporation and subsidiaries (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in audited annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Management of the Company believes that the disclosures included herein are adequate to make the information presented not misleading when read in conjunction with the Company’s audited consolidated financial statements and the notes included therein for the year ended December 31, 2015, as filed with the SEC by the Company on Annual Report on Form 10-K.
In management’s opinion, the condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, and which are necessary for a fair presentation, in all material respects, of financial results for the interim periods presented. Operating results for the first six months of 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Certain prior year amounts have been reclassified to conform to the 2016 presentation. The restructuring reserve of $0.1 million reported as of December 31, 2015 has been reclassified to accounts payable and accrued liabilities.
There have been no developments to recently issued accounting standards from those disclosed in the Company’s Annual Report on Form 10-K as filed with the SEC for the year ended December 31, 2015, except for the following.
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842)” which introduces a lessee model that brings most leases on the balance sheet, requiring lessees to recognize the right to use assets and lease obligations that arise from lease arrangements exceeding a twelve month term. Lessees will also need to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new guidance is effective for fiscal years beginning after December 15, 2018, and early application is permitted. Entities are required to use a modified retrospective transition for existing leases. The Company is evaluating the provisions of this ASU and assessing the impact it may have on the Company’s consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” which amends the principal-versus agent implementation guidance and illustrations in FASB’s new revenue standard ASU 2014-09. The new guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing” which amends certain aspects of the guidance in ASU 2014-09. For identifying performance obligations, the amendments include: immaterial promised goods and services, shipping and handling activities, and identifying when promises represent performance obligations. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” This clarifies the collectability assessment, sales tax presentation and the treatment of contract modifications and completed contracts at transition. In May 2016, the FASB issued ASU 2016-11, “Rescission of SEC Guidance Because of Accounting Standards Update 2014-09” which rescinds certain SEC guidance upon adoption including those related to freight services in process and shipping and handling fees. All of the new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Entities have the option of using either a full retrospective or a modified retrospective approach. The Company is evaluating the provisions of these ASUs and assessing the impact they may have on the Company’s consolidated financial statements and related disclosures.
6
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Entities may use the modified retrospective transition method for existing share-based payment transactions. The Company is evaluating the provisions of this ASU and assessing the impact it may have on the Company’s consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which adds a Current Expected Credit Loss (CECL) model that is based on expected losses rather than incurred losses, which is applicable to trade receivables. The new guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting period. Entities are required to use the modified retrospective approach. The Company is evaluating the provisions of this ASU and assessing the impact it may have on the Company’s consolidated financial statements and related disclosures.
2. Inventories
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|
|
|
|
|
|
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Raw materials |
|
$ |
23,851 |
|
$ |
23,327 |
|
Finished goods |
|
|
99,291 |
|
|
87,037 |
|
Total |
|
$ |
123,142 |
|
$ |
110,364 |
|
Inventories are recorded net of reserves of $2.6 million and $2.4 million for obsolete and slow-moving items as of June 30, 2016 and December 31, 2015, respectively.
3. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
· |
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities; |
· |
Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
· |
Level 3 — Unobservable inputs that reflect the reporting entity’s own assumptions. |
7
The following financial instrument assets (liabilities) are presented below at carrying amount, fair value, and classification within the fair value hierarchy (refer to Notes 4 and 5 for details relating to derivative instruments and borrowing arrangements). The only financial instruments measured at fair value on a recurring basis are derivative instruments and the acquisition earn-out liability:
|
|
Fair Value |
|
June 30, 2016 |
|
December 31, 2015 |
|
||||||||
|
|
Hierarchy |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
||||
|
|
Level |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
1 |
|
$ |
51,240 |
|
$ |
51,240 |
|
$ |
53,629 |
|
$ |
53,629 |
|
Derivative assets |
|
2 |
|
|
297 |
|
|
297 |
|
|
468 |
|
|
468 |
|
Derivative liabilities |
|
2 |
|
|
(1,168) |
|
|
(1,168) |
|
|
(783) |
|
|
(783) |
|
Acquisition earn-out liability |
|
2 |
|
|
(140) |
|
|
(140) |
|
|
(163) |
|
|
(163) |
|
Long-term debt, including current portion |
|
2 |
|
|
(109,133) |
|
|
(109,133) |
|
|
(111,441) |
|
|
(111,441) |
|
Accounts receivable and accounts payable included in the condensed consolidated balance sheets approximate fair value and are excluded from the table above. The fair value of cash and cash equivalents are based on quoted prices. The fair value of derivative assets and liabilities are measured based on inputs from market sources that aggregate data based upon market transactions. Fair value for the acquisition earn-out liability is based upon Level 2 inputs which are periodically re-evaluated for changes in future projections and the discount rate. This liability is recorded in accrued pension and other liabilities within the Company’s condensed consolidated balance sheets. The Company’s debt bears interest based on market rates and, accordingly, the carrying value of these obligations approximates fair value.
4. Derivative Instruments
The Company uses foreign currency forward exchange contracts and foreign exchange option contracts to limit the exposure of exchange rate fluctuations on certain foreign currency receivables, payables, and other known and forecasted transactional exposures for periods consistent with the expected cash flow of the underlying transactions. Management’s policy for managing foreign currency risk is to use derivatives to hedge up to 75% of the value of the forecasted exposure. The foreign currency forward exchange and foreign exchange option contracts generally mature within eighteen months and are designed to limit exposure to exchange rate fluctuations.
The Company also uses natural gas forward contracts to limit the exposure to changes in natural gas prices. Management’s policy for managing natural gas exposure is to use derivatives to hedge up to 75% of the forecasted natural gas requirements that are not fixed. The natural gas forward contracts generally mature within twenty-four months.
The Company accounts for its derivative instruments under ASC 815 “Derivatives and Hedging.” Hedge effectiveness is measured on a quarterly basis and any portion of ineffectiveness as well as hedge components excluded from the assessment of effectiveness, are recorded directly to current earnings, in other expense - net.
The fair value of outstanding derivative contracts in the condensed consolidated balance sheets was as follows:
Asset Derivatives |
|
Balance Sheet Locations |
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Other current assets |
|
$ |
37 |
|
$ |
411 |
|
Natural gas contracts |
|
Other current assets |
|
|
127 |
|
|
— |
|
Foreign exchange contracts |
|
Other assets |
|
|
13 |
|
|
6 |
|
Natural gas contracts |
|
Other assets |
|
|
55 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Other current assets |
|
|
65 |
|
|
51 |
|
Total asset derivatives |
|
|
|
$ |
297 |
|
$ |
468 |
|
8
Liability Derivatives |
|
Balance Sheet Locations |
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Accounts payable and accrued liabilities |
|
$ |
941 |
|
$ |
13 |
|
Natural gas contracts |
|
Accounts payable and accrued liabilities |
|
|
78 |
|
|
586 |
|
Foreign exchange contracts |
|
Accrued pension and other liabilities |
|
|
125 |
|
|
3 |
|
Natural gas contracts |
|
Accrued pension and other liabilities |
|
|
— |
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Accounts payable and accrued liabilities |
|
|
24 |
|
|
92 |
|
Total liability derivatives |
|
|
|
$ |
1,168 |
|
$ |
783 |
|
The Company had the following outstanding derivative contracts that were entered into to hedge forecasted transactions:
(in thousands except for mmbtu) |
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Natural gas contracts (mmbtu) |
|
|
900,000 |
|
|
955,000 |
|
Foreign exchange contracts |
|
$ |
40,483 |
|
$ |
37,016 |
|
The use of derivatives exposes the Company to the risk that a counterparty may default on a derivative contract. The Company enters into derivative financial instruments with high credit quality counterparties and diversifies its positions among such counterparties. The aggregate fair value of the Company’s derivative instruments in asset positions represents the maximum loss that the Company would recognize at that date if all counterparties failed to perform as contracted. The Company has entered into various master netting arrangements with counterparties to facilitate settlement of gains and losses on these contracts. These arrangements may allow for netting of exposures in the event of default or termination of the counterparty agreement due to breach of contract. The Company does not net its derivative positions by counterparty for purposes of balance sheet presentation and disclosure.
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||||||||
|
|
Fair Value |
|
Fair Value |
|
Fair Value |
|
Fair Value |
|
||||
|
|
of Assets |
|
of Liabilities |
|
of Assets |
|
of Liabilities |
|
||||
Gross derivative amounts recognized in the balance sheet |
|
$ |
297 |
|
$ |
1,168 |
|
$ |
468 |
|
$ |
783 |
|
Gross derivative amounts not offset in the balance sheet that are eligible for offsetting |
|
|
(126) |
|
|
(126) |
|
|
(67) |
|
|
(67) |
|
Net amount |
|
$ |
171 |
|
$ |
1,042 |
|
$ |
401 |
|
$ |
716 |
|
Derivatives in Cash Flow Hedging Relationships
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The location of the gain or (loss) reclassified into earnings (effective portion) for derivatives in cash flow hedging relationships is cost of products sold (excluding depreciation and amortization).
|
|
Amount of Gain or (Loss) Recognized |
|
||||||||||
|
|
in OCI on Derivatives (Effective Portion) |
|
||||||||||
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
Foreign exchange contracts |
|
$ |
(407) |
|
$ |
(180) |
|
$ |
(1,446) |
|
$ |
870 |
|
Natural gas contracts |
|
|
398 |
|
|
(27) |
|
|
207 |
|
|
(350) |
|
Total |
|
$ |
(9) |
|
$ |
(207) |
|
$ |
(1,239) |
|
$ |
520 |
|
9
|
|
Amount of Gain or (Loss) Recognized from |
|
||||||||||
|
|
Accumulated OCI into Earnings (Effective Portion) (1) |
|
||||||||||
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
Foreign exchange contracts |
|
$ |
153 |
|
$ |
624 |
|
$ |
434 |
|
$ |
1,068 |
|
Natural gas contracts |
|
|
(315) |
|
|
(280) |
|
|
(590) |
|
|
(404) |
|
Total |
|
$ |
(162) |
|
$ |
344 |
|
$ |
(156) |
|
$ |
664 |
|
(1) |
Assuming market rates remain constant with the rates as of June 30, 2016, a loss of $0.9 million is expected to be recognized in earnings over the next 12 months. |
During the three and six month periods ended June 30, 2016 and 2015, there was no gain or (loss) recognized in earnings on derivatives related to the ineffective portion and the amount excluded from effectiveness testing, which would have been recorded in other expense – net.
Derivatives Not Designated as Hedging Instruments
The Company has also entered into certain derivatives to minimize its exposure of exchange rate fluctuations on certain foreign currency receivables, payables, and other known and forecasted transactional exposures. The Company has not qualified these contracts for hedge accounting treatment and therefore, the fair value gains and losses on these contracts are recorded in earnings, in other expense - net as follows:
|
|
Amount of Gain or (Loss) Recognized in Earnings on Derivatives |
|
||||||||||
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
Foreign exchange contracts |
|
$ |
(262) |
|
$ |
300 |
|
$ |
1,290 |
|
$ |
(730) |
|
Total |
|
$ |
(262) |
|
$ |
300 |
|
$ |
1,290 |
|
$ |
(730) |
|
5. Borrowing Arrangements
Long-Term Debt |
|
June 30, 2016 |
|
December 31, 2015 |
|
||
U.S. Credit Agreement Borrowings |
|
$ |
104,750 |
|
$ |
107,700 |
|
Japanese Credit Agreement Borrowings |
|
|
4,383 |
|
|
— |
|
Japanese Term Loan Borrowings |
|
|
— |
|
|
3,741 |
|
Total Long-Term Debt |
|
|
109,133 |
|
|
111,441 |
|
Less Current Portion of Long-Term Debt |
|
|
(7,500) |
|
|
(7,500) |
|
Net Long-Term Debt |
|
$ |
101,633 |
|
$ |
103,941 |
|
U.S. Credit Agreement
On November 6, 2013, the Company entered into the U.S. Credit Agreement (Credit Agreement) which provides for a senior unsecured revolving credit facility (Revolver) in an amount up to $225.0 million. As a result of amendments, the expiration date of the Revolver is now November 6, 2020. A portion of the Revolver not in excess of $75.0 million shall be available for standby or letters of credit for trade, $15.0 million shall be available for swing loans, and $50.0 million shall be available for loans or letters of credit in certain foreign denominated currencies. The Company may have the option to increase the Revolver in an amount not to exceed $75.0 million with the consent of the Lenders. Availability under the Revolver is conditioned upon various customary conditions. In April 2016, an amendment was signed to the Credit Agreement that increased the threshold for a “Permitted Acquisition.” Refer to Note 15 for further information.
The Credit Agreement also provides for senior unsecured delayed draw term loans (Delayed Draw Term Loans) in an aggregate amount up to $75.0 million which expire on November 6, 2020. The full amount of the Delayed Draw Term Loans was outstanding as of December 31, 2015, and beginning January 1, 2016, the Company began making quarterly repayments. As a result, $7.5 million is shown as the current portion of long-term debt within the condensed consolidated balance sheet as equal quarterly repayments will continue until the remaining balance is due on the November 6, 2020 expiration date.
10
Upon entering into the Credit Agreement, the Company incurred issuance costs of $0.8 million which were deferred and are being amortized over the term of the Revolver and Delayed Draw Term Loan facilities. A quarterly nonrefundable commitment fee is payable by the Company based on the unused availability under the Revolver and is equal to 0.18%.
The interest rate on amounts owed under the Revolver and Delayed Draw Term Loans will be, at the Company’s option, either (i) a fluctuating Base Rate or (ii) an adjusted LIBOR rate plus in each case, an applicable margin based on the Company’s leverage ratio as set forth in the Credit Agreement. The interest rate charged on amounts owed under swing loans will be either (i) a fluctuating Base Rate or (ii) such other interest rates as the lender and the Company may agree to from time to time. The interest rate per annum on outstanding borrowings ranged from 1.70% to 1.86% as of June 30, 2016, and 1.19% to 1.34% as of June 30, 2015.
Total outstanding borrowings under the Revolver were $33.5 million and $32.7 million as of June 30, 2016 and December 31, 2015, respectively. Total availability under the Revolver as of June 30, 2016 and December 31, 2015 was $189.2 million and $189.9 million, respectively, after considering borrowings and the outstanding letters of credit of $2.3 million and $2.4 million as of June 30, 2016 and December 31, 2015, respectively. Total outstanding borrowings under the Delayed Draw Term Loans were $71.3 million and $75.0 million as of June 30, 2016 and December 31, 2015, respectively. There is no remaining availability under the Delayed Draw Term Loans. The outstanding borrowings are shown as current portion of long-term debt and long-term debt within the condensed consolidated balance sheets, and borrowings and repayments are presented on a gross basis within the Company’s condensed consolidated statements of cash flows.
Certain domestic subsidiaries of the Company unconditionally guarantee all indebtedness and obligations related to borrowings under the Credit Agreement. The Company’s obligations under the Credit Agreement are unsecured.
The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type. The Company is permitted to pay dividends so long as the sum of availability under the Credit Agreement and the amount of U.S. cash on hand is at least $50.0 million, and debt is less than or equal to 2.75x earnings before interest, taxes, depreciation and amortization. In addition, the Credit Agreement includes limitations on the Company and its subsidiaries with respect to indebtedness, additional liens, disposition of assets or subsidiaries, and transactions with affiliates. The Company must comply with certain financial covenants including a minimum interest coverage ratio and a maximum leverage ratio as defined within the Credit Agreement. The Company was in compliance with all such covenants as of June 30, 2016. The Credit Agreement also provides for customary events of default, including failure to pay principal or interest when due, breach of representations and warranties, certain insolvency or receivership events affecting the Company and its subsidiaries and a change in control of the Company. If an event of default occurs, the lenders will be under no further obligations to make loans or issue letters of credit. Upon the occurrence of certain events of default, all outstanding obligations of the Company automatically will become immediately due and payable, and other events of default will allow the agent to declare all or any portion of the outstanding obligations of the Company to be immediately due and payable.
Japanese Credit Agreement
On March 24, 2016, Calgon Carbon Japan (CCJ) entered into a 2.0 billion Japanese Yen unsecured revolving loan facility agreement (Japanese Credit Agreement) which expires on March 24, 2019. The Japanese Credit Agreement replaced the Term Loan Agreement (Japanese Term Loan) and Working Capital Loan (Japanese Working Capital Loan) agreement that CCJ previously had in place which are described below. As of June 30, 2016, CCJ had 450 million Japanese Yen, or $4.4 million outstanding. The outstanding borrowings are shown as long-term debt within the condensed consolidated balance sheets, and borrowings and repayments are presented on a gross basis within the Company’s condensed consolidated statements of cash flows.
A quarterly nonrefundable commitment fee is payable by CCJ based on the unused availability under the Japanese Credit Agreement and is equal to 0.18%. Total availability under the Japanese Credit Agreement was 1.55 billion Japanese Yen as of June 30, 2016. The Japanese Credit Agreement bears interest based on the Tokyo Interbank Offered Rate of interest (TIBOR), plus an applicable margin based on the Company’s leverage ratio as defined in the U.S. Credit Agreement, which averaged 1.31% per annum as of June 30, 2016. The Company is jointly and severally liable as the guarantor of CCJ’s obligations under the Japanese Credit Agreement. CCJ may make voluntary prepayments of
11
principal and interest after providing prior written notice and before the full amount then outstanding is due and payable on the March 24, 2019 expiration date.
Prior Japanese Loans
Prior to March 31, 2016, CCJ maintained a Japanese Term Loan and a Japanese Working Capital Loan. These agreements were terminated on March 31, 2016 and replaced by the Japanese Credit Agreement described above. The Company was jointly and severally liable as the guarantor of CCJ’s obligations and the Company permitted CCJ to grant a security interest and continuing lien in certain of its assets, including inventory and accounts receivable, to secure its obligations under both loan agreements. The amount of the assets available to be pledged was in excess of the outstanding obligation as of December 31, 2015.
The Japanese Term Loan provided for a principal amount of 1.0 billion Japanese Yen and bore interest based on the Uncollateralized Overnight Call Rate plus an applicable margin which averaged 0.7% per annum as of December 31, 2015. This loan was originally scheduled to mature on May 10, 2017. As of December 31, 2015, CCJ had 450 million Japanese Yen or $3.7 million outstanding. The outstanding borrowings were shown as long-term debt within the condensed consolidated balance sheets, and borrowings and repayments were presented on a gross basis within the Company’s condensed consolidated statements of cash flows.
The Japanese Working Capital Loan provided for borrowings up to 1.5 billion Japanese Yen, and bore interest based on the Short-term Prime Rate. This loan was scheduled to mature on March 31, 2016. Borrowings and repayments under the Japanese Working Capital Loan generally occurred in short term intervals, as needed, in order to ensure adequate liquidity while minimizing outstanding borrowings. As of December 31, 2015, CCJ had no outstanding borrowings under this facility.
Chinese Credit Facility
The Company maintained an Uncommitted Revolving Loan Facility Letter (Facility Letter) which provided for an uncommitted line of credit totaling 5.0 million Renminbi (RMB) or $0.8 million. This Facility Letter was scheduled to expire on July 19, 2016, but was canceled in April 2016. The Company was jointly and severally liable as the guarantor under the Facility Letter. There were no outstanding borrowings under this facility as of either June 30, 2016 or December 31, 2015.
Belgian Credit Facility
The Company maintains an unsecured Belgian credit facility totaling 2.0 million Euros. There are no financial covenants and the Company had no outstanding borrowings under the Belgian credit facility as of either June 30, 2016 or December 31, 2015. Bank guarantees of 0.9 million Euros were issued as of both June 30, 2016 and December 31, 2015.
United Kingdom Credit Facility
The Company maintains a United Kingdom credit facility for the issuance of various letters of credit and guarantees totaling 0.6 million British Pounds Sterling. Bank guarantees of 0.4 million British Pounds Sterling were issued as of both June 30, 2016 and December 31, 2015.
12
6. Pensions
U.S. Plans
For the U.S. plans, the following table provides the components of net periodic pension costs of the plans for the periods ended June 30, 2016 and 2015:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
Service cost |
|
$ |
220 |
|
$ |
275 |
|
$ |
478 |
|
$ |
568 |
|
Interest cost |
|
|
1,127 |
|
|
1,074 |
|
|
2,297 |
|
|
2,227 |
|
Expected return on assets |
|
|
(1,507) |
|
|
(1,773) |
|
|
(3,017) |
|
|
(3,566) |
|
Amortization of prior service cost |
|
|
— |
|
|
3 |
|
|
— |
|
|
7 |
|
Net actuarial loss amortization |
|
|
720 |
|
|
586 |
|
|
1,504 |
|
|
1,270 |
|
Settlement |
|
|
680 |
|
|
— |
|
|
680 |
|
|
— |
|
Net periodic pension cost |
|
$ |
1,240 |
|
$ |
165 |
|
$ |
1,942 |
|
$ |
506 |
|
The Company incurred a settlement charge in the second quarter of 2016 as a result of lump sum payments elected by retiring employees. If additional lump sum payments are elected in the second half of 2016, the Company may incur additional settlement charges, however, the amount is not yet estimable.
European Plans
For the European plans, the following table provides the components of net periodic pension costs of the plans for the periods ended June 30, 2016 and 2015:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
Service cost |
|
$ |
94 |
|
$ |
72 |
|
$ |
186 |
|
$ |
145 |
|
Interest cost |
|
|
300 |
|
|
306 |
|
|
597 |
|
|
611 |
|
Expected return on assets |
|
|
(377) |
|
|
(416) |
|
|
(752) |
|
|
(830) |
|
Net actuarial loss amortization |
|
|
59 |
|
|
54 |
|
|
117 |
|
|
109 |
|
Net periodic pension cost |
|
$ |
76 |
|
$ |
16 |
|
$ |
148 |
|
$ |
35 |
|
Multi-Employer Plan
In addition to the aforementioned European plans, the Company participates in a multi-employer plan in Europe. This multi-employer plan almost entirely relates to former employees of operations the Company had divested. Benefits are distributed by the multi-employer plan. As of June 30, 2016 and December 31, 2015, respectively, the Company had a $1.1 million and $0.9 million liability recorded as a component of payroll and benefits payable within its condensed consolidated balance sheets. Refer to Note 11 for further information related to this multi-employer plan.
7. Stockholders’ Equity
Dividends on common stock of $0.05 per share were declared and paid in both the first and second quarters of 2016 and 2015. In addition, in August 2016, the Company’s Board of Directors declared a dividend on common stock of $0.05 per share.
In December 2013, the Company’s Board of Directors approved a share repurchase program with a total of $150 million of purchases authorized. During the six months ended June 30, 2016 and June 30, 2015, the Company repurchased 518,576 and 319,381 shares, respectively, at an average price of $15.81 per share and $21.35 per share, respectively. As of June 30, 2016, the Company had repurchased a total of 4,598,661 shares at an average price of $18.67 per share under this program. All of the above mentioned repurchases were funded from operating cash flows, cash on hand, and borrowings and the shares are held as treasury stock. Subsequent to these repurchases, the Company’s remaining authorization to repurchase its common stock is approximately $64.1 million. In April 2016, the Company suspended the activities of the share repurchase program.
13
8. Accumulated Other Comprehensive Income (Loss)
The changes in the components of accumulated other comprehensive income (loss), net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
Foreign |
|
Defined |
|
|
|
|
Accumulated |
|
|||
|
|
Currency |
|
Benefit |
|
|
|
|
Other |
|
|||
|
|
Translation |
|
Pension Plan |
|
|
|
|
Comprehensive |
|
|||
|
|
Adjustments |
|
Adjustments |
|
Derivatives |
|
Income (Loss) |
|
||||
Balance as of December 31, 2015, net of tax |
|
$ |
(11,070) |
|
$ |
(30,474) |
|
$ |
(86) |
|
$ |
(41,630) |
|
Other comprehensive income (loss) before reclassifications |
|
|
(311) |
|
|
241 |
|
|
(867) |
|
|
(937) |
|
Amounts reclassified from other comprehensive income (loss) |
|
|
— |
|
|
1,022 |
|
|
78 |
|
|
1,100 |
|
Net current period other comprehensive income (loss) |
|
|
(311) |
|
|
1,263 |
|
|
(789) |
|
|
163 |
|
Balance as of June 30, 2016, net of tax |
|
$ |
(11,381) |
|
$ |
(29,211) |
|
$ |
(875) |
|
$ |
(41,467) |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
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Foreign |
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Defined |
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Accumulated |
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Currency |
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Benefit |
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Other |
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Translation |
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Pension Plan |
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Comprehensive |
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Adjustments |
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Adjustments |
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Derivatives |
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Income (Loss) |
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Balance as of December 31, 2014, net of tax |
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$ |
1,943 |
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$ |
(30,358) |
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$ |
905 |
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$ |
(27,510) |
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Other comprehensive income (loss) before reclassifications |
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(6,972) |
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|
58 |
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|
341 |
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(6,573) |
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Amounts reclassified from other comprehensive income (loss) |
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— |
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|
899 |
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(459) |
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|
440 |
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Net current period other comprehensive income (loss) |
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(6,972) |
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|
957 |
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(118) |
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(6,133) |
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Balance as of June 30, 2015, net of tax |
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$ |
(5,029) |
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$ |
(29,401) |
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$ |
787 |
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$ |
(33,643) |
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Amount Reclassified from |
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Details about |
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Accumulated Other Comprehensive Income (Loss) (1) |
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Affected Line Item in the |
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Accumulated Other Comprehensive |
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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Statement where |
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Income (Loss) Components |
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2016 |
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2015 |
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2016 |
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2015 |
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Net Income is Presented |
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Defined Benefit Pension Plan Adjustments: |
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